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Living in London advises investors on buy-to-let tax changes

With so many changes underway in the lettings industry, it’s easy to see why landlords and investors are nervous for the future. It is now more expensive to buy since the 3% Stamp Duty surcharge was introduced back in 2016, not to mention more expensive to own since the loss of the 10% wear-and-tear allowance. April 2017 saw the beginning of tax relief on mortgage interest being phased out, and with overseas investors now having to pay capital gains tax, things are looking pretty gloomy for the buy-to-let industry, with many calling this the end of buy-to-let for all but the richest.

At Living in London, we receive a lot of questions from landlords about the state of the lettings market. We want to help investors every way we can, so we’ve broken down what each of these changes means and ways you can secure your assets to get the most from them.

Stamp Duty

One big and recent change involves additional stamp duty land tax surcharge imposed on buy-to-let investors, affecting those purchasing residential property and more so for those who own two or more properties and remain at their main residence.

There’s no avoiding this tax unless you manage to find a property under £40,000 which seems unlikely in this market. We’d advise investors to ensure they are up-to-date with percentage changes before they make an offer so there are no nasty surprises when it’s time to pay the stamp duty. Ultimately, this shouldn’t put investors off buying, just ensure you’re making smart investment choices and calculating your return on investment well in advance.

Wear-and-Tear Allowance

In April last year, the HMRC announced the abolition of the wear-and-tear allowance which previously gave landlords renting out fully furnished properties the chance to claim back 10% of the rental income received.

This is an annoyance more than anything, it hasn’t drastically affected the market or how landlords choose to manage their investments. It just means that it’s more important than ever to ensure you have good tenants in your properties. We cannot stress how vital it is to ensure your tenants are extensively vetted before they move in. Always choose better tenants over a better offer, it will save you money in the long run. At Living in London, it’s our company policy to not only fully reference tenants, we will not accept any smokers or pet owners (unless our landlords request otherwise) to leave your property in the best possible condition.

Changes to tax relief

One of the most controversial changes to buy-to-let tax is the restriction of financial costs affecting mortgage interest and other finance costs. From April 2017, a 4-year equal phase-in will commence, and mortgage interest will no longer be deductible when calculating your rental profits. The first phase of the process has already begun, with landlords now only able to offset 75 per cent, rather than the full 100 per cent, of their mortgage interest payments. These deductions will be gradually withdrawn and replaced with a basic rate relief tax reduction.

This change is only applicable for residential property, so you will not be affected if you operate a Furnished Holiday Let, or a commercial lettings business. It will also not affect those with property in a limited company, but will affect LLPs and partnerships.

Making the right investments is key in this market. Some landlords may consider moving properties into limited companies, while others will opt to convert to a repayment mortgage or contemplate raising rents.

If you’re concerned with these changes, we have a dedicated Property Investment Team available to answer your questions and queries. If you’d like to take advantage of our FREE PROPERTY CONSULTATIONS, we’d be happy to have a chat about your portfolio and advise you of any future investment opportunities. Contact us today!